Kavan Choksi Provides a Good Understanding of the United States Debt-Ceiling



The debt-ceiling deal between President Joe Biden and House Speaker Kevin McCarthy suspended the United States’ debt limit through 2025 to avoid a federal default while limiting government spending. As per Kavan Choksi, the centerpiece of the agreement remains a two-year suspension of the debt ceiling, which is responsible for capping the total amount of money the government is allowed to borrow. Suspending that cap, which is now set at $31.4 trillion, allows the government to keep borrowing money and pay its bills on time.

Kavan Choksi offers an overview of the United States debt-ceiling

The debt ceiling or debt limit basically limits the total amount of money the United States government can borrow to pay its bills. Typically, this money is borrowed to make payments associated with Medicare, social security, military, salaries of federal employees, along with interest on the national debt and tax refunds. Every so often, US Congress votes to raise or suspend the ceiling so it can borrow more. Currently, the cap stands at $31.4tn. This limit was breached in January. However, the Treasury Department of the United States made use of “extraordinary measures” to provide the government with more cash while it figured out what to do.

The debt limit was created way back in 1917. It provided the Treasury Department autonomy for borrowing limit debt up to the debt ceiling without congressional approval. This made it easier to finance mobilization efforts during World War I.

It is important to understand that the debt limit does not authorize new spending commitments.  Rather, it just allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past. Not increasing the debt ceiling may have catastrophic economic consequences. In fact, it may cause the government to default on its legal obligations, which is an unprecedented event in American history. Such a situation might precipitate another financial crisis, and threaten the savings and jobs of thousands of Americans.

Due to its grave importance and implications, the Congress has always acted when called upon to raise the debt limit. Since the year of 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or to revise the definition of the debt limit. This has been done 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that making changes in the debt ceiling from time to time is an important necessity.

In the opinion of Kavan Choksi, the debt ceiling highlights one of the fundamental ideological differences between the two major political parties in the United States. The lawmakers from both sides do agree that there is a need to reduce federal government spending. However, the parties broadly disagree on how deeply to cut spending, the areas that require spending cuts as well as where additional revenue must be used to bridge the budget deficit. The Republicans generally view government spending skeptically and the rising national debt is evidence of out-of-control government to them.

The democrats, on the other hand, view national government power as a force for good and consider raising the debt limit a need to maintain the operation of the government.

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